Deeds of Variation
Can a Will be Altered by Beneficiaries?
When most people make their Will, they do not know when they are going to die. One consequence of this is that many Wills prove to be less tax-efficient than they would be if that person had made their Will just before his or her death to take account of the tax laws in force at the time. However, the people who will benefit from the Will (the beneficiaries) can often overcome this problem by using a ‘Deed of Variation’.
A Deed of Variation allows a beneficiary under a Will, or a beneficiary under the laws of intestacy if there is no Will, to redirect his or her benefit to another person of his or her choosing. This means that beneficiaries can take full account of family circumstances, and the tax laws, at the time of death. The estate can then be distributed in the most tax-efficient way possible. However, as you would expect there are strict rules that have to be followed for a Deed of Variation to be valid. These rules include the following.
- The Deed of Variation must be made within two years of the deceased’s death.
- For the deed to be effective for Inheritance Tax purposes the Capital Taxes Office should be told within six months of the deed being made.
- For the deed to be effective for Capital Gains Tax purposes the Inland Revenue should be told within six months of the deed being made.
- For Income Tax purposes, any income arising between the date of the deceased’s death and the date of the deed is usually considered to belong to the original beneficiary.
The greatest tax advantage of making a Deed of Variation is that any benefit redirected under the deed is treated, for Inheritance Tax purposes as having been directed by the deceased. This means that the person making the variation does not need to then live for the normal period of seven years after making the gift for the gift to become free-from Inheritance Tax. For this reason, Deeds of Variation are a vital part of Inheritance Tax planning for many people. For a married couple, a Deed of Variation can result in ultimate Inheritance Tax savings of over £96,000 (depending on the terms of the deceased’s will, whether the deceased transferred any assets while alive, and the deceased’s financial circumstances when he or she died).
This note is issued for information purposes only. If you would like further information on the possibility of varying your interest in an estate, please talk to Frank Fletcher, Tom Monteith or Pamela Niven or your usual Bird Semple contact.
